Have been asked a great question regarding the make up of commissions. More specifically the difference between a shipbrokers commissions and a thing called "address commissions".
Here is the scoop.
- In most shipping transactions there are two types of commissions that are paid.
- Remember that in 99 percent of occassions it is the shipowner who pays the commissions.
- A standard 1.25 percent is paid to the broker for the service provided
- But the shipowner is also asked to pay something called an "address commission"
- An address commission is anywhere bewteen 1.25 and 5 percent, charged by the charterer and payable by the shipowner.
Charterer A has 50,000 tonne to be shipped. When he sends this requirement to a broker he states at the bottom of the cargo order that an address commission of 2.5 percent is to be included in the shipowners calculation.
The broker then adds his 1.25 percent and by the time the order reaches the shiponwer there is a total commission value of 3.75 percent payable by the shipowner to the broker and the charterer.
This now becomes a fairly large cost for the shipowner and the shipowner must now allow for this cost when calculating the required freight rate. After 20 minutes of analysis the shipowner can see that without any commissions this biusiness is worth to him approx USD 50.00 per metric tonne to carry. But with 3.75 percent commissions payable he must now add a further USD 2.00 per metric tonne to cover this cost. So he offers USD 52.00.
HANG ON! I hear you say. Why would a charterer ask for an address commission when all he is doing is increasing the cost to the shipowner and therefore making his freight more expensive?
Good question. The more commission he charges the higher the freight bill. But the main reason is this. ACCOUNTING! Many charterers have large shipping departments that cost money to run. They need a mechanism whereby they can direct moneys toward the running of this department taking into account accounting principals and tax laws.
The bigger the inhouse shipping dpearment the bigger the cost and this may mean the bigger the address commission.
This the main reason for address commission - but the truth is that shrewd charterers also use address commissions in their trading strategy. That is a whole new story!
Anyway i hope this helps explain one of the many mysteries of the bulk freight market!
Any questions just drop me a line
- The Virtual Shipbroker
- Hi. I am a shipping company director, transport academic, author, family man and all round nice guy. I have worked as shipbroker, shipowner, freight trader and bulk charterer, in senior positions, with some of the largest and most disrespected (joke) companies in the world. Ask my advice on all things shipping and you will receive my blunt and always honest answer. Hang around to learn more about chartering and ship broker salaries, chartering and ship broker jobs, chartering and shipbroker recruitment agencies, cheap freight, maritime education, chartering and ship broker qualifications, become a ship broker, tips on how to be a successful bulk shipping executive, philosophy, Zen and the art of shipbroking, and much more. Yours The Virtual Shipbroker (recently proclaimed the guru of shipbroking) Copyright © 2009-17 by Virtualshipbroker